Workers Want Greater Control of Their Healthcare Dollars

The share of workers enrolled in a high-deductible health plan increased substantially last year, according to new research from the State Health Access Data Assistance Center at the University of Minnesota.

About 56% of people with employer-sponsored coverage had high-deductible plans in 2021. That's 5.3 percentage points more than in 2020.

Few people like paying significant sums out of pocket for healthcare. And that's just what high-deductible plans tend to require.

But they're actually in the financial interests of many Americans — especially when paired with a tax-advantaged health savings account, or HSA.

People must have a high-deductible plan if they wish to contribute to an HSA.

The minimum deductible for such a plan is $1,400 for an individual or $2,800 for a family.

Out-of-pocket expenses — including deductibles, copayments, and coinsurance — can't exceed $7,050 for an individual or $14,100 for a family.

Those potential out-of-pocket expenses come with significant tax benefits, if people take advantage of what HSAs can do.

Money is tax-free going in, grows tax-free within the account, and is tax-free going out, as long as it covers medical expenses.

This year, individuals can save up to $3,650 in an HSA for healthcare expenses. Families can put away up to $7,300. The triple tax advantage HSAs offer can amount to thousands of dollars in value each year.

Indeed, the tax savings alone can beat the return a person can get on cash, bonds, and all but the highest-flying stocks.

Unlike flexible spending accounts, HSA funds roll over from year to year.

Individuals own them and can carry them from job to job, or even into retirement.

So they can grow in perpetuity.

Perhaps the most significant benefit of HSAs is that they empower individuals to spend their healthcare dollars as they see fit, instead of letting their employer or insurance company decide for them.

The result is that patients are incentivized to shop around for high-value care, which, in turn, puts downward pressure on overall healthcare spending.

Taken together, these benefits help explain why HSAs have grown more popular.

At the end of last year, there were more than 32 million HSAs open around the country — an increase of 8% from the previous year, according to a recent analysis by the consulting firm Devenir.

Total assets in those accounts surpassed $100 billion in January.

That's up from $15.5 billion 10 years ago and $3.4 billion in 2007.

Still, the possibility of covering the first $1,400 or more in medical expenses each year can be daunting — and may discourage people from selecting high-deductible plans.

But that may not be the wisest financial decision.

High-deductible plans generally have lower premiums.

If people don't consume much medical care, the difference between the lower premiums for a high-deductible plan and the higher premiums for a more comprehensive plan could be significant.

Further, around half of Americans have healthcare expenses of less than $1,000 each year, according to research from the Paragon Health Institute.

With expenses like that, they're probably better off sending less money to an insurance company and putting aside as much as they can afford in an HSA. Then they can use that tax-free money to cover their modest healthcare expenses — and watch the remainder grow.

Many critics of HSAs say they're a giveaway to the wealthy, who can afford to set aside several thousand dollars a year without too much trouble. But that's simply not true. These accounts can make an enormous difference in the lives and financial futures of low-income people, too.

Many employers have adopted "HSA Partnership" strategies to encourage low-income workers to embrace HSAs. Under this model, companies provide upfront HSA contributions of $500 to $1,000 and agree to match worker contributions of $250 to $500.

Even a thousand dollars a year from an employer can grow into many thousands by retirement. As such, HSAs can put low-income people and those early in their careers on the path to wealth creation.

The growth in high-deductible health plans and HSAs suggests that workers are interested in taking greater control of their healthcare dollars and spending or saving them as they see fit.

Injecting some consumerism into the healthcare market can help improve quality and reduce cost. Those are trends we should welcome.

Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is "False Premise, False Promise: The Disastrous Reality of Medicare for All," (Encounter Books 2020). Follow her on Twitter @sallypipes. Read Sally Pipes' Reports — More Here.